2.56pm: Now, Rainer Brüderle of the FDP party (the junior party in Angela Merkel’s coalition), is addressing the Bundestag – and rebutting opposition leader Peer Steinbrück’s call for a Plan B for Greece.

Brüderle dismissed the proposal of a new growth package for Greece funded by a transaction tax on the banks, arguing that Greeks do not need more money, they need structural reforms.

Brüderle also opposed the idea of increasing Europe’s bailout fund, saying that investment in Greece must come from “private, not public sources”.

2.52pm: Despite criticising Merkel, Peer Steinbrück pledged his party’s support for the Greek package. It may be flawed, but the SDP will vote for it because the alternative is, as the chancellor herself warned, worse.

2.48pm: Peer Steinbrück proposed an alternative solution to the diet of austerity being handed to Greece.

He said his party would devise and implement growth programme for Greece & other Mediterranean countries. It would be funded by “a tax on financial transactions”.

Steinbrück, head of the Social Democrats, told the Bundestag that the chancellor had been fixation on austerity and failed to grasp the scale of the challenge facing Europe, calling her crisis management “too little, too late”.

Steinbrück condemned the fixation on fiscal adjustments in Greece, saying “thumbscrews” would not fix the country’s problems.

Steinbrück (who has also attracted some heckling) predicted that German MPs would soon be gathered in the chamber to discuss an increase in the EFSF and the ESM (despite Merkel’s denial – see 2.26pm)

The chancellor told the Bundestag that there was “No need to increase EFSF & ESM funds.”

That looks like a straight rebuff to the G20, which yesterday said that it would not provide more help to resolve the eurozone crisis until Europe itself has “reassessed” its own firepower.

Many other EU nations, including the Dutch, want the combined ESM/EFSF to be increased to €750bn, but Germany remains adamant that the €500bn limit should hold.

Merkel did say, though, that Germany will pay €11bn of its contribution to the European Stability Mechanism (ESM) this year, and could pay the second half of the bill in 2013. So, not suggestion that Germany would hold back on its commitments.

She also insisted that the aid promised for Greece would make the country more competitive. Austerity, though, cannot be avoided.

2.21pm: Angela Merkel has moved onto long-term solutions to the eurozone crisis.

She says it is essential that the fiscal compact [tougher budget rules across the eurozone] is rapidly ratified, and insists that closer political union will also restore confidence in the euro.

She also touches on the growth issue, saying that increased flexibility in the way that EU structural funds are spent could help promote growth and competitiveness.

2.14pm: Heckling! Angela Merkel was briefly distracted by chuntering from within the Bundestag after she said that she knows there are some peopel who think the Greeks should return to the drachma and quit the euro….

…her own interior minister, for starters.

But the Chancellor isn’t put off her stride for long. She insists that rejecting the bailout would certainly cause great damage, affecting Portugal and Ireland and adding to contagion across the region.

In essence, Merkel’s message is:

Saving Greece is in Europe’s interest and therefore in Germany’s interest.

2.11pm: Merkel moves onto Greece, telling German MPs that the country has made progress in the last couple of years.

But she admits that the bailout is not without risks.

UPDATE: Here’s the key quote from Merkel:

There is no 100% guarantee that the second bailout programme will succeed.

2.06pm: Chancellor Angela Merkel begins by telling German MPs that there is no single, one-off solution to the eurozone crisis.

The idea of a quick solution to the crisis is just an illusion, she says. But the consequences of failure are severe: The European Union will fail if the euro fails.

She tells the Bundestag that Europe is “united in agreement” over the causes of the crisis. Now, she insists, the EU must work together towards building a stable union. That, though, will take several years.

1.50pm: Political developments in Greece – the minister responsible for the country’s police, Christos Papoutsis, has resigned.

Not, though, in protest at the Greek rescue package, or because of the occasionally violent protests on the streets of Athens. Instead Papoutsis (whose official title is Citizen Protection Minister) is stepping down to run for the leadership of Pasok, the socialist party.

Associated Press reports:

Papoutsis, 58, will represent the traditionalist wing of the socialist party in the election. Vice-premier and Finance Minister Evangelos Venizelos is the favorite to win.

• In the bond markets, Italy’s borrowing costs fell to their lowest level since September 2010. The successful auction came as data showed Italian and Spanish banks have been buying record amounts of government debt.

1.05pm: If you’re looking for something to read this lunchtime, can I recommend this piece by Megan Greene of Roubini Global Economics?

She just returned from her latest trip to Athens, and reports a “pronounced shift” in public attitudes to the crisis. Interestingly, people aren’t just worried about themselves – they are concerned about the impact on the generations above or below them:

Every person has a story either about a pensioner who is forced to pay ever higher property taxes while his pensions are rapidly shrinking and prices continue to rise, or of a younger friend or sibling with multiple master’s degrees who has had to work in call centres or cafés because there are no job openings commensurate with his experience….

Many of the Greeks with whom I spoke also expressed a visceral bitterness towards the troika. This underlies the epic breakdown in trust between the troika and Greece, which has recently been reflected in the discourse between the two sides as they have negotiated a second bailout. Troika representatives have clearly noted the antagonism with which they are met in Athens, as they have quadrupled the number of bodyguards in their entourages over the past year.

But despite the pain and anger, Greene still found that most Greeks “express desperation to stay in the eurozone”.

Elisabeth Afseth of Investec pointed out that this puts the ball firmly back into Germany’s court:

Germany remains opposed to letting the EFSF and ESM run concurrently to their full capacity, with a change in stance likely to be required before any non-eurozone countries commit to providing additional funds.

For some time American investors have taken the view that it is too time consuming trying to keep up with every development in the Eurozone crisis, that there are just not enough hours in the day to fully understand what is going on and therefore it is best to keep out or take very few positions. Maybe European market players are also coming to same view.

12.20pm: The Greek package also needs to be approved by parliaments in the Netherlands and Finland; the Bundestag isn’t the only hurdle left to cross.

Debate is due to start in the Netherlands parliament tomorrow. The deal should be approved, but there may be some political manoeuvring. As Reuters explains:

The Dutch government, a minority coalition between the Liberal and Christian Democrat parties, usually relies on the opposition Labour Party for support in such debates because its main ally, Geert Wilders’ Freedom Party, strongly opposes bailouts for Greece and other eurozone peripheral economies.

We saw last week that the Dutch are also very concerned about the situation in Greece (finance minister Jan Kees de Jager called for a permanent troika presence in Athens), so the debate could be quite lively.

In the reader comments, IfigEusLannuon pointed out that the “Greece is Changing” campaign (see 9.06am) is targeting the Dutch audience:

Those guys paid for a full-page ad in this Sunday’s Le Monde. Those are greek big businesses (CocaCola Hellenic, OTE, others according to Kathimerini) wanting to present Greece reforms in a positive way to the rest of Europe. The choice of languages for the website is indicative of the target: English, Deutsch and French, but also Nederlands, probably because Netherlands has a biggest share of euroseptics than other.

11.58am: Greek cultural & tourism minister Pavlos Yeroulanos has hit back at claims that Greece should leave the euro.

Yeroulanos told CNBC that such criticism could destroy the deal agreed last week, plunging Europe into a fresh crisis. He also appeared to take a swipe at German interior minister Hans-Peter Friedrich (who proposed making Greece an offer it couldn’t refuse).

Yeroulanos said:

Germany needs the euro just as much as Greece does. They need to decide whether they will make a real commitment to the euro, which has been a great thing for the German economy.

We have taken some very important moves towards a stronger union, and then we see statements by people which undermine the steps that the EU made.

11.32am: Should Germany send tax officials to Greece?

We wouldn’t normally presume to ask, but it emerged over the weekend that more than 160 German tax collectors have volunteered for possible assignments in Greece. Their mission, should Athens choose to accept them, would be to help the Greek authorities gather tax more efficiently.

There is historical precedent – after reunification, West German tax officials were dispatched to the East to help improve revenue collection. But as Norbert Walter-Borjans, finance minister for the state of North Rhine-Westphalia, conceded:

There was resistance then among some eastern Germans against western (tax collectors) but that’s nothing compared to the reservations Greeks will have against Germans.

11.17am:Angela Merkel is expected to cruise through this afternoon’s vote in the German parliament on the second Greek bailout.

Around a dozen MPs are expected to rebel, but Merkel should still be able to rely on opposition votes, if needed.

Helen Pidd has the latest from Berlin ahead of the vote (expected around 4.30pm GMT):

Even the CDU’s Wolfgang Bosbach, the most high profile of the dozen or so government rebels who will vote “no” today, has told reporters that he expects the vote to pass without Merkel having to rely on opposition support. But that doesn’t mean the German cabinet is fully supportive of the plans to save Greece.

As reported earlier, the interior minister, Hans-Peter Friedrich, has become the first minister to say Greece would be better out than in the eurozone. The Süddeutsche Zeitung reports that Friedrich is not a lone dissenter. The left-leaving daily claims both the finance minister, Wolfgang Schäuble, and the economy minister, Philipp Rösler, are among those in the government who privately do not believe in the current strategy for keeping Greece from the brink. Neither are quoted in the front page story, which also claims the German chancellor is determined to avoid a Greek exit from the euro because of the deleterious knock-on effect it would have on the German economy andbeyond.

Among the German population, bailing out Greece is becoming ever moreunpopular, Helen adds:

A poll in Bild am Sonntag newspaper found 62% of Germans are against the €130bn rescue package while 33% are in favour. In a similar poll in September, 53% were opposed and 43% in favour.

11.03am: The German cabinet met this morning ahead of the Greek debate (which begins in around three hours time).

10.39am: Critics of the European Central Bank’s policy of pumping liquidity into Europe’s financial sector through low-cost three years loans may be interested in this:

Italy and Spain’s banking sectors both spent record amounts buying up eurozone government debt last month. Spanish banks spent a total of €23.1bn on eurozone sovereign debt in January, with Italy’s snapping up another €20.6bn.

The data doesn’t show which country’s debt they bought, but both Spanish and Italian debt has strengthened this year (as today’s Italian auction showed). Megan Greene of Roubini Global Economics commented on Twitter that banks would generally have bought up their own national debt.

It’s quite a trick — the ECB lends huge amounts of euros at 1% to European banks, who snap up the loans and use the proceeds to buy higher-yielding bonds (Italian 10-year bonds, for example, yield 5.4% despite rising in value this year). The banks get a guaranteed profit, Europe’s peripheral countries find willing buyers for their debt, and the ECB resists pressure to take more dramatic measures such as quantitative easing.

10.33am: More government debt sale action — Germany sold €2.545bn of 12-month bills at a yield of 0.0768% (very slightly higher, but still in ‘ultra-safe’ territory).

10.15am: The first results from this morning’s government debt auctions are in — and Italy has sold €8.75bn of six-month bills at a yield (the effective interest rate) of just 1.2%, down from 1.97% in January. That’s the lowest level since September 2010.

Italy also sold €3.5bn of nine-month bills, at an average yield of 1.29%.

Some relief for Italy after this morning’s poor business confidence survey, but it’s hard to read too much into it, given how much ECB-funded liquidity is sloshing around the markets.

For a more sobering statistic, check out FTSE volatility index – which measures fear in the London stock market. It jumped by more than 10% this morning, which Josh Raymond of City Index says is a worrying sign:

That’s the suggestion from the latest M3 money supply data from the ECB this morning (the broadest measure of money supply, including physical currency, savings accounts, and money in large and long-term reserves). Today’s M3 data showed that money supply rose by 2.5% in January on an annual basis.

It also showed a small rise in lending to households, while loans to European firms stabilised.

With another splurge of cheap cash from Mario Draghiahem, ECB Long Term Refinancing Operation taking place later this week, economist are hoping that business and household lending will pick up. As Howard Archer of IHS Global Insight points out, that could prevent the ECB from cutting rates again next month:

The stabilization in Eurozone private loans and rise in money supply in January reinforces already strong belief that the ECB will keep interest rates at 1.00% at their March policy meeting, particularly given some recent improved survey data.

Even so, we still expect interest rates to be eventually trimmed from 1.00% to 0.75% as Eurozone economic activity remains soft overall and fragile.

9.38am: Italian business confidence has slumped to its lowest level in 27 months.

Data released at 9am showed that Italian business morale fell by more than economists has expected in February, to 91.5, on national statistics body ISTAT’s survey. It hasn’t been lower since November 2009.

The data reinforces fears that the Italian economy will shrink for most of 2012. There’s a fine graph here (by Reuters’ Scott Barber), showing how business confidence is a good forward indicator of GDP.

In contrast, German business morale hit a seven-month high last week, as its business leaders took heart that the worst of the crisis was over.

9.22am:Helena Smith (who is supposed to be on a well-earned break) also reports from Athens that Greece is reeling from revelations that several politicians had added to the capital flight that has exacerbated the country’s fiscal woes by transferring substantial deposits abroad in the last two years.

Helena says:

One MP is believed to have moved €1m euros to the UK just when the finance ministry was desperately trying to halt the flight in May last year. Of the €65bn euro whisked out of banks since late 2009 some €16bn ended up overseas, according to finance minister Evangelos Venizelos.

None of the MPs have as yet been identified, prompting the Greek media to demand that they step forward – starting with the man or woman of the “missing million.”

Helena says it will be interesting to see if any of the so called offenders ‘out themselves’ by the time she returns from holiday next week. After all, she says, the latest campaign to win over public opinion (see previous post) makes the point that this is the chance to “create a new Greece. A modern, productive and creative Greece with a sustainable future in Europe.”

9.06am: Over to Greece, where a new campaign called “Greece is Changing” has been launched, with full page adverts in many newspapers – including Germany daily papers.

Helena Smith, our correspondent in Athens, says the initiative shows that Greeks are determined to win over the hearts and minds of critics abroad. She explains:

Under the banner headline “Give Greece a chance”, prominent Greek business people funding the campaign emphasised the sacrifices made over the last three years “by every Greek under the toughest austerity package in modern history.”

And they insisted that debt-choked Athens was committed to reform, recovery and future growth despite the “dramatic impact” of such robust change on “the life of every Greek.”

As you can see above, the advert recognises that Greece faces further hardship, but also criticises the stereotypes that they say are unfairly pinned on Greeks.

We are hardworking, tax paying citizens unfairly labelled with sterotypes so easily handed out to Greeks today … All we are saying is give Greece a chance.

Catchy, eh?

8.44am: Germany’s interior minister has become the first member of Angela Merkel’s cabinet to suggest Greece should leave the eurozone.

Hans-Peter Friedrich broke ranks in an interview with Der Spiegel, in which he says: “Greece’s chances of regenerating and becoming competitive are definitely greater outside the eurozone than in.”

Friedrich added:

I’m not talking about kicking Greece out, but to create incentives for a departure which the Greeks will find hard to pass up.

Friedrich is one of the weaker ministers in the German government – he belongs to the CSU, the Bavarian sister party to to Merkel’s Christian Democratic Union (CDU) and isn’t taken desperately seriously in Germany. Chances are, he was just flexing his muscles for the CSU’s conservative supporters in Germany’s rich south, most of whom are rabidly against the Greek bailouts.

Nonetheless, it cannot be comforting reading for the Greeks. As a Spanish colleague from El Pais put it to me, Friedrich’s phrasing has sinister tinges of Marlon Brando’s line in The Godfather: “I’m gonna make him an offer he can’t refuse.”

But Germany’s foreign minister today brushed off all speculation about a Greek exit. “I don’t understand the political speculation about a Greece outside the eurozone,” Guido Westerwelle told Die Welt.

8.24am: European stock market have fallen in early trading.

The FTSE 100 dropped 30 points to 5905, a fall of around 0.5%. Other markets fell by similar amounts, with the German DAX and French CAC both down around 0.7%. This follows a lacklustre performance in Asia.

The recent rally in oil is still causing concerns, with traders saying the high prices could hamper the global economy. As Michael Hewson of CMC Markets explained, Europe is particularly vulnerable to an oil shock.

This surge in prices has raised concerns that it could choke off the recent improvement in US economic data, as well as make economic conditions in Europe worse than they already are, especially in the periphery, where Greece, Spain and Italy remain particular vulnerable to the Iranian oil embargo.

8.21am: Angela Merkel should win this afternoon’s vote, but the big question is whether she suffers a significant rebellion.

It would only take a few more rebels to leave Merkel dependent on opposition votes – not a comfortable position for the chancellor. Her coalition controls 330 seats in the Bundestag, and needs 311 votes for victory.

Members of Merkel’s Christian Democratic Union (CDU) party were vocal about their concerns over the weekend. As Reuters reported:

“Quite clearly the mood in Germany is turning against further rescues for Greece,” Klaus-Peter Willsch, a leading dissident on Greek aid in Merkel’s Christian Democrats (CDU), said in an interview with Reuters on Sunday.

“But that’s not surprising. This is all deja vu for the public. We’ve been promised all kinds of things that aren’t fulfilled and then a few months later there’s the need for another rescue package. The public’s faith is fading fast.”

An opinion poll published yesterday found that 62% of Germans oppose the new Greek deal.

8.04am: Here’s today’s agenda:

• Today’s debate in the Bundestag over Greek loan deal begins at 2pm GMT (3pm CET). Angela Merkel will open the debate, with a vote taking place later this afternoon.

8.00am: Good morning, and welcome to our rolling coverage of the eurozone debt crisis.

Today, Germany will decide whether it supports the financial aid programme which was agreed by euro finance ministers a week ago. The vote takes place in the Bundestag (the lower house) this afternoon. The package is expected to be passed, but Angela Merkel may suffer a rebellion from her own side.

The vote is overshadowed by a warning from Germany’s interior minister that Greece should quit the euro (of which more shortlyhere).

And in the bond markets Italy, Belgium, France and Germany are all holding debt auctions. With banks gearing up for another massive offer of cheap loans from the European Central Bank later this week, they are likely to go well. But we’ll see….